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In the News

5th UPDATE: Retailers Report Disappointing September Sales

NEW YORK -(Dow Jones)- Retailers posted weaker-than-expected September sales, stoking worries that the housing slump and credit crunch will crimp spending during the crucial holiday season.

Blaming unusually balmy weather that quelled demand for fall fashions, department stores and apparel retailers reported some of the most disappointing results, with J.C. Penney Co. (JCP), Nordstrom Inc. (JWN) and Limited Brands Inc. (LTD) all cutting their estimates for third-quarter profits. Wal-Mart Stores Inc. (WMT), however, raised its earnings outlook, with analysts citing strong controls on costs and inventory.

Retailers collectively reported a 1% increase in September same-store sales, or sales at stores open at least a year, according to an index of 39 major chains compiled by Lazard Capital Markets LLC. That's well below the 3.9% gain seen a year earlier, and is among the weakest monthly showings by the industry in several years, said Todd Slater, an analyst at the New York investment firm.

"I think this confirms pessimistic views about the holiday season," Slater says. "The consumer needs a reason to buy, and there are probably not as many 'must-haves' this year as in the past."

Lingering summer weather, which forced early markdowns on fall apparel, pushed sales below this year's already weak clip, said Michael Niemira, chief economist at the International Council of Shopping Centers. Recent data on employment - a key driver of consumer spending - have been encouraging, and colder temperatures will likely spur a rebound from September's lull. Still, he expects holiday sales will fall short of last year's tepid gains.

Minneapolis-based Target Corp. (TGT), whose "cheap chic" fashions and housewares are a draw for style-obsessed shoppers on a budget, said its same- store sales increased just 1.2%, missing a lowered outlook it gave mid-month. Singling out sluggish apparel sales, Target slightly lowered its full-year earnings forecast.

Wal-Mart, Bentonville, Ark., said its same-store sales rose 1.4%. The result fell slightly short of analysts' estimates, according to Thomson Financial, and sales of apparel and home-related goods remained weak. Nevertheless, Wal-Mart raised its third-quarter earnings outlook to a range of 66 cents to 69 cents a share from 62 cents to 65 cents a share. Its stock rose 3.6% in recent trading to $47.24.

Wal-Mart continues to lower costs by better matching worker schedules with the ebb and flow of customer traffic, says Bill Dreher, an analyst at Deutsche Bank Securities Inc. Having announced early price cuts on toys this month, Wal-Mart also appears to be benefiting from its low-price image, and is using advertising to reinforce it effectively among consumers, Dreher says.

Fewer shoppers have ventured out of the house in recent weeks, and when they did they stuck mostly to off-mall discount venues, according to a recent survey by America's Research Group. Stiff prices for food and gasoline are helping warehouse clubs lure consumers to their grocery aisles, although a bargain- hunting grocery shopper "is not their ideal customer," says Britt Beemer, president of the Charleston, S.C., consulting firm.

Same-store sales at Wal-Mart's Sam's Clubs beat analysts' expectations, as did those at Costco Wholesale Corp. (COST) and BJ's Wholesale Club Inc. (BJ).

Meanwhile, disappointing results at upscale retailers sparked worries that a bumpy stock market may threaten holiday spending by more well-heeled shoppers. Seattle-based Nordstrom's reported a weaker-than-expected 3.2% increase. Noting that inventory has been growing faster than sales, Nordstrom said fall markdowns will result in lower-than-expected third-quarter profits.

However, many industry observers doubt that luxury spending is in trouble. Saks Inc.'s (SKS) 7.7% gain fell slightly short of Wall Street's forecast, but that was likely because of persistently warm weather in the Northeast, says Faith Hope Consolo, chairman of retail leasing and sales at New York real-estate firm Prudential Douglas Elliman.

"There have been some job cuts on Wall Street, but there's still plenty of money around," Consolo says, noting that luxury chains including Barneys New York and Neiman Marcus Group Inc. (NMGA) continue to add stores in new markets throughout the U.S. This week, Tiffany & Co. (TIF) opened a new store on Wall Street in Manhattan.

In the middle market, J.C. Penney's 4.6% decline surprised analysts, who had expected a small increase. The Plano, Texas, department store slashed its third- quarter earnings estimate to between $1 and $1.04 a share, down from $1.28 a share. Kohl's Corp. (KSS) posted a 3.2% decline and said third-quarter results will likely come in at the low end of the range in a previous forecast.

Macy's Inc. (M), which faced tough comparisons with a year ago when it staged an ad blitz to launch the Macy's brand nationwide, posted a 2.7% decline. In a written statement, Chairman and Chief Executive Terry J. Lundgren said shoppers "reacted positively" to the September launch of the Martha Stewart Collection, a proprietary line of home products.

Elsewhere in the mall, Limited Brands Inc. warned it may miss its quarterly earnings estimates after posting a wider-than-expected same-store sales drop of 4%. Gap Inc.'s (GPS) same-store sales fell 7%, steeper than the 4.6% drop analysts had expected.

 

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